Categories: Base Metals / Precious Metals
Topics: General Base Metals / General Precious Metals

(RES.V) You Gotta Follow The Smart Money

March 24, 2008
Rare Element Resources Ltd. (RES.V)
Preliminary Report

You gotta follow the smart money!

Although I was already aware of this company, it moved in from the periphery of my radar screen with a couple of ‘Hi, how are you’ meetings at the recent PDAC in Toronto.

I chatted first with Don Ranta, Company President, at the booth on the exhibitors’ floor. In a nutshell, this project is two pronged. It’s a gold prospect and it’s a rare-earth element (REE) prospect. At present, the market credits it as a gold prospect, since that’s what the market understands. The REE aspect is intriguing to me, but more on that in a moment. Let’s stick to the gold for now.

RES has a joint venture with Newmont for the gold exploration of its Bear Lodge property in northeastern Wyoming. This excludes any interest in uranium and rare-earth elements. Newmont has the right to earn a 65% share of the project by performing US$5 million in exploration on the property, with a later option to raise its share to 80% by completing a positive project feasibility study. I’ve heard that Newmont doesn’t get down and dirty for projects with potential for less than 5 million ounces of gold. As I calculate it (use the cubing tool, http://www.grahamanalytics.com/Toolbox/cubing.htm  forcing the ounces figure to yield final values per share). If it’s true that Newmont sees the potential for a minimum of 5 million ounces of gold at Bear Lodge, let’s calculate the ‘what if’ value to RES shareholders at 20% of the project, or 1 million ounces.

Share price has ranged between $0.80 and $1.60 since last May (with a momentary spike above $1.70). With just over 24 million shares fully diluted, and gold at $920, the market is currently attributing value at 2.4% of the Company’s share of the suggested 5 million ounces in situ (with no value assigned to the rare-earth side). With the involvement of a major already in hand, this valuation seems not overdone by any stretch. Any movement forward on the news front as to positive results in exploration bears the potential to push this much higher. Of course, we don’t yet know how much gold is present, just that Newmont is present.

Now to the rare-earth side of the equation. Rare-earth elements are actually not so rare. They make up 25% of all metals in the earth’s crust. They were thought rare when first discovered some 200 years ago. What is rare about them is their presence in economic quantities. Rare-earth elements include 15 from the lanthanide-series (lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and lutetium), along with yttrium, scandium, and thorium. Say that five times with crackers in your mouth.

Uses for these metals are largely high-tech, and include: